March 17, 2017

As takings mavens are no doubt already aware, next Monday, the 8-Justice Supreme Court will hear arguments in Murr v. Wisconsin, the regulatory takings case which asks whether the county can avoid application of the Lucas wipeout standard on one parcel by taking advantage of the fact that the plaintiffs also own the adjacent parcel. Thus, the county argues, both parcels should be combined to determine how the regulation has impacted the property.

Others have done a better job at previewing the issues than we could hope to (see SCOTUSblog, the National Constitution Center, and the Federalist Society), so we won't do a big summary here, but will limit ourselves to pointing out what we think will be the key areas of contention. Go read the voluminous briefing as well. And with the Court one-Justice-down for this case, we're certainly not going to even venture into guessing about the outcome.

Watering Down the Lucas Test

Under Lingle, the core question which a regulatory takings claim is trying to solve is whether a regulation is so restrictive that it deprives the owner of the economically beneficial use of her property and has an impact similar to the government's exercise of eminent domain. At heart, the question the Court is being asked in Murr is how much of an owner's entire property holdings can be used to measure the impact.

There's little question that the parcel the Murrs claim was regulated to near worthlessness, standing alone, has little value to them in its regulated state. They can't build on it except in combination with their other parcel, they can't sell it. Only when combined with the neighboring parcel which the Murrs also own can the county argue that its regulations merely are a reduction in value for the Murrs, and not a total loss. If the Murrs only owned the one parcel, they wouldn't be in this fight. In short, the issue to be resolved is whether on the merits, the court will apply the Lucas per se test -- a claim the Murrs are very likely to win -- or the Penn Central ad hoc takings test which is heavily slanted in favor of the county.

A Millennium of Fee Simple vs a Century of Combination

The Murrs argue that their separate fee simple parcels should treated as separate, at least as the starting point. And before they can be combined to measure a taking, the county needs to show more than the same owners own two adjoining substandard parcels. As Professor Lee Fennell recently wrote, title to fee simple parcels in the foundation on which our concept of private property is built:

Nearly all privately owned real estate in the United States is held in fee simple absolute, or fee simple for short. Every law student learns that the fee simple is the most extensive of all the estates in land—endless in duration, unencumbered by future interests, alienable, bequeathable, and inheritable. Behind these descriptive elements lies the implicit normative message that the fee simple represents the endpoint of real property’s evolution, a more or less final answer to the question of how a modern society should structure access to land.

The county, state, and their amici take a much different approach, arguing that fee simple metes-and-bounds are just lines on a map, and that Wisconsin property law -- on which the Murrs rely to define their fee simple property rights -- also includes the regulations which require combining substandard, adjacently-owned parcels. People don't own property parcel-by-parcel, they claim, but more like a Monopoly game in which an owner collects up different deeds, and what really matters is all of your stuff considered together.

In our view, the owners' discrete parcel approach is the better one, since fee simple absolute title of identified parcels of land is the building block on which property law has been built for a thousand years. Ask a real person (not a lawyer or planner) about ownership of land, and chances are they will talk about a parcel, defined by its metes-and-bounds. Robert Frost wouldn't just combine adjacent properties (good fences make good neighbors, right?), and we think the Court will be hard-pressed to say the starting point for the Murrs isn't their recognized fee simple parcel, and is a vaguely-defined combination of two legally distinct pieces. Title matters to most people, and it should here. It isn't like the Murrs segmented their property "bundle" into its various "sticks," then argued the regulations worked a wipeout of one stick. And the net result which an eventual win by them will presumably be that they will sign over the deed to their entire second parcel to the government, once they are paid compensation.

Locke and Load

Another problem for the county, state, and their amici is more conceptual than physical. Their arguments are built on a very Hobbesian foundation -- the Murrs rely on Wisconsin property law for their fee simple title to the parcel they claim has been taken, so the limiting regulations are also part of that body of law, and the Murrs have to take the bitter with the sweet. Savvy property owners have to know about these and similar ordinances nationwide.

That argument, as the headline reveals, is very Levianthan-esque in our view. Too Levianthan-esque for the Court to want to visit, since it has always suggested that property ownership isn't one of those things that is totally subject to state definition or redefinition. See, for example, the Stop the Beach case (for judicial redefinition), or our recently-filed cert petition (for legislative redefinition of property). The Founders certainly had a Lockian outlook on property (see John Adams’ proclamation that "property must be secured or liberty cannot exist," and John Locke's Second Treatise on Civil Government. PartXI, section 138, if you want to get really specific). We don't think a majority of today's Court would be willing to jettison those principles just yet.

And state law has never been the be-all, end-all of the question of what constitutes "property" as the county and state and their amici argue, at least as far as what is a compensable property interest. There are some principles which transcend a state's ability to define it (the right to physically exclude, the right to transfer, the right to make economically beneficial use), regardless of state definitions. See Webb's Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S. 155 (1980).

The Just Compensation Clause is self-executing, which means that once "property" is taken, the state cannot avoid paying for it. As much as Wisconsin is free to tailor its property law to its own needs, it cannot avoid the Fifth Amendment's requirements when it does so. And the ordinance's prohibition on sale to a third party owner who might be able to make use of it is the part which we think will bring the most grief from the Justices. Not only can the Murrs not use their second parcel unless combined with their first, they can't even sell so someone who can.

For Richer For Poorer?

If the Murrs didn't happen to own adjoining parcels, they'd be in Lucasland for sure. Thus, what the county is essentially arguing is that the more affluent the plaintiff, the less the complete loss of a single separate parcel will have on her overall wallet. The more you own, the less a taking of a discrete parcel hurts. There's some inherent appeal with the argument because as we all know, eminent domain is focused on the "loss to the owner" (and not the "gain to the taker"), and we expect some questions on this for the owners' counsel from the left side of the Court's bench on Monday.

But there doesn't seem to be a limiting principle to that argument, unless the Court is ready to say that a more wealthy plaintiff is entitled to less constitutional protection. We'd be surprised if there were five votes for that. Truth be told, we'd be surprised if there were more than one vote for that (scroll down the linked post to "Lone Wolf"). We think even if the Court were inclined to go there, the practicalities would take over - the more wealthy a property owner, the more sophisticated she is likely to be; the more sophisticated, the more likely she would be able to structure ownership of multiple parcels in such a way to avoid formal common ownership, so any such rule could fairly easily be avoided or overcome.

What About Straight Takings Doctrine?

The federal government's amicus brief -- ostensibly in favor of the county and state, but in reality much more a "neither party" type of argument -- argues that the Court's doesn't like bright lines in takings cases, and it shouldn't draw them here. There's a lot of appeal to that argument because, yes, the Court has reminded us a number of times that clear rules are a "temptation" that must be "resisted." See,e.g., Palazzolo v. Rhode Island, 533 U.S. 606, 636 (2001) ("The temptation to adopt what amount to per se rules in either direction must be resisted.”). Instead, the feds suggest a rule that looks an awful lot like the three-factor test for "larger parcel" in eminent domain.

You eminent domain lawyers know what we're talking about, the "three unities." In cases where a condemnor is taking Parcel A, the owner may claim severance damages to Parcel B if all or some combination of three elements are met. The more an owner can show that she formally owns both, that they are nearby, and that they are used together, the more likely it will be that the finder of fact will award severance damages for the parcel not formally taken. In that analysis, the most important is whether the condemnee uses the two parcels together such that they can be treated by the court as one. Thus, when a parking lot is condemned, the condemnor may have to pay severance damages to the business across the street that uses the parking lot, if the parking lot owner also owns the business. Separate parcels, but they can be treated as one for purposes of eminent domain law if they are used together.

We think the Justices may consider importing this approach into regulatory takings law, since it could be applied in a wide variety of reg takings situations, and has the additional intellectual value of bringing some symmetry to regulatory takings and eminent domain doctrine. Our own view is that there is nothing incompatible with the Murrs' argument that fee simple absolute metes-and-bounds title is the presumptive starting point for analysis of the larger parcel in regulatory takings.

The Murrs are not asserting that settling on their proposed rule (fee simple title is the denominator is reg takings unless the government can prove that there's some other reason otherwise) will dispose of their case. They still have to show denial of all economically beneficial use of their primary parcel. Title is the starting point in eminent domain cases, and the Court may like that it is the starting point in regulatory takings as well.

Predictions?

As we noted above, we aren't going to hazard a guess on how this one will come out. With only eight Justices hearing the arguments, even if we see a Justice Gorsuch soon, it's very likely that he will not play a part in deciding this case. We could even see a four-four split, which means affirmed by an equally-divided Court. Or a dismissal of the writ for being improvidently granted. Wait for the next case (and there are other cases in the pipeline which present this issue). Or we could see a wholesale revisit to Penn Central's ad hoc three-part test.

We won't be able to be there in person on Monday, but we'll bring you our thoughts on the arguments as soon as we can read the transcript. Stay tuned.

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At the 2016 Brigham-Kanner Property Rights Conference in the Hague, The Netherlands (October 19-20, 2016, I'm speaking on two panels: "Property's Role in the Fundamental Political Structure of Nations," and "Defining and Protecting Property Rights in Intangible Assets." More information here.

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